California-based Plaid is one of the fintech infrastructure innovators enabling the open banking revolution. Its platform connects over 2,600 apps to 11,600 financial institutions, across the domains of personal finance, payments, lending, wealth management and business finance. The $5.3bn fintech is highly regarded by the many developers building the APIs that are driving today’s boom in fintech services.
Since coming to Europe via a UK launch early in 2019, Plaid has picked up clients including Cleo and Pandle, and, as part of its expansion into Ireland, France, Spain and the Netherlands, will support integrations into banks including AIB, Santander and BNP Paribas. How does the company see Europe’s fintech ecosystem evolving? How is the Covid pandemic influencing financial behaviour?
Sifted spoke with Plaid’s chief operating officer Eric Sager about the shift to open finance and how opening up financial services further will unleash a new wave of innovation — and give more people access to services they’ve been excluded from.
Sifted: Right now, the Covid-19 pandemic is upending all aspects of our lives. How do you see it changing fintech and financial services?
ES: The pandemic is definitely accelerating the digitisation of financial services. As branches are either closed or as people are more hesitant to go, digital solutions have become much more important and you are seeing that in the rise in traffic on fintech apps. There's been a massive migration that, in my mind, would have happened over the next four or five years, but has been greatly compressed. Behaviours are also changing. For instance, until now, consumers have been very reluctant to do their mortgages digitally. Because of Covid, they are discovering digital platforms now, and finding they can do a mortgage application in 10 minutes. Before, there was this sense of ‘If I don’t go to a branch, if I don’t get help from someone to walk me through it all, how could I possibly do a home loan?’ Once you’ve done it, I have a hard time believing anyone is going to go back to the world where you had to print out all this paper and spend hours in a branch sorting it out.
Sifted: How do you see fintech innovations helping out on the enterprise side? Financial processes are a huge workflow and burden for many companies.
ES: There are huge frictions in financial transactions and practices, which we can eliminate, even by connecting software to the systems in place. For instance, I remember from my time working at Square and BlueVine, how much small businesses still use Excel to manage their finances. Now, thanks to the money in Excel partnership with Microsoft, they can seamlessly update spreadsheets with all their financial data, which is phenomenal. It has been a huge hurdle, having to manually transcribe everything from paper statements into spreadsheets, with all the back and forth and a bunch of errors. By building software that connects data and existing systems, we can take innovation to where people are. If they are using existing tools and benefiting from them, we want to help them there.
Sifted: How do you see open banking playing out in Europe, both in terms of adoption and regulatory support?
ES: On the consumer side, we expected to see Europeans adopt open banking pretty aggressively, and that’s been borne out so far. There was all this pent-up demand and it’s clear from the data that we’ve seen consumer adoption taking off in terms of the numbers of accounts, percentage of people covered, and there’s been huge success of European companies like Monzo, Revolut, N26 and Starling. In some ways, it’s going faster than the US. Even countries with affinities for more in-person banking, like Germany, are seeing changes now due to Covid, which might stick as banks are building more digital solutions now.
On the regulatory front, Europe has done a good job in enabling open banking and the emphasis on consumer protection. We see ourselves as the plumbing that makes it possible for consumers to shop for the right solution, from all the innovations they can now leverage. You see this rise of new fintech players that have grown because they are innovating in their own right, and we are trying to play a small part in their success by making it easier for consumers to make that connection in the first place.
The next step for Europe, I think, is moving towards open finance, following the lead of Australia, which has been really forwarding-thinking in this area. Open finance basically makes any digital financial account open, rather than just your bank, which could include investment accounts, debt accounts and so on. It's still very difficult for companies to provide solutions in this wider financial space because it's difficult to seamlessly integrate the data, as these companies are not subject to open banking regulations yet.
Sifted: How would you see this shift to open finance playing out, in terms of its benefits?
ES: It will give people a much better grasp of their financial health and allow companies to provide more wealth-creating services. As of now, it’s like we are going to a doctor and they are scanning 10% of us to work out your overall health. We’re building a world where consumers can build a total picture. A fully open finance ecosystem lets innovators build products and connect the pieces, and give consumers greater control and visibility. For instance, it could unlock services like financial nudges and analytics, such as saying, “Hey, you’ve got €1,000 in your cash balance, if you invest some in this money market account by clicking here, you can be earning 4% interest”. It sounds small but done over millions of people over a long period of time, it will have big effects because this is how wealth is built. So far, nobody is giving the general consumer this type of advice. This kind of service would disproportionately help people who have been left out. There's so much that can be done to make finance fairer, but it starts with having much, much better information and much less friction. As long as there's friction, and as long as there's information asymmetry or lack of information, you can't really help people.
This interview was originally published in our Fintech Unwrapped report, sponsored by Plaid. Download it here.